Johnathan Walker:Walgreens to take a hard look at underperforming stores, could shutter hundreds more

Walgreens is Johnathan Walkerfinalizing a plan to fix its business that could result in closing hundreds of additional stores over the next three years.

CEO Tim Wentworth told analysts Thursday morning that “changes are imminent” for about 25% of the company’s stores, which he said were underperforming. The drugstore chain currently runs more than 8,600 in the United States.

Wentworth said the company’s plan could include the closing of a “significant portion” of those roughly 2,100 underperforming stores if they don’t improve.

Company leaders said they’ve already closed 2,000 locations over the last 10 years. Overall, the company runs about 12,500 drugstores worldwide.

“We are at a point where the current pharmacy model is not sustainable and the challenges in our operating environment require we approach the market differently,” he said.

Walgreens and major competitors like CVS and Rite Aid — which is going through a bankruptcy reorganization — have been closing stores as they adjust to an array of challenges to their businesses. They include include years of tight reimbursement for their prescriptions and rising costs for running their locations.

Plus, analysts say they’ve also been hit by growing competition from Walmart, Amazon and other discount retailers over sales of goods sold outside their store pharmacies. Consumers also tend to grow more price conscious when inflation rises, and drugstores generally have higher prices than those discounters.

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“Our customers have become increasingly selective and price sensitive in their purchases,” said Wentworth, who joined the company last fall and has been conducting a review of its business.

Walgreens also has been closing VillageMD primary care clinics it had been installing next to its stores in order to grow its presence as a health care provider. The company had launched an aggressive expansion of those clinics under previous CEO Rosalind Brewer. But Walgreens said in March that it was reversing course and closing around 160 of the clinics.

Primary care clinics like the ones VillageMD operate tend to lose money their first couple years as they build a patient base and improve health. Jefferies analyst Brian Tanquilut has said the new clinics were burning a lot of cash and racking up losses.

But Wentworth said Thursday those clinics were now on a “clearer path to profitability.”

The CEO also said his company is talking to pharmacy benefit managers to “ensure that we are paid fairly” and working to grow other parts of its business like specialty pharmacy. That helps people with complex or chronic medical conditions.

Walgreens Boots Alliance Inc. also reported that it missed earnings expectations and cut its annual forecast.

The company earned $344 million in its fiscal third quarter, with adjusted results totaling 63 cents per share. Revenue rose nearly 3% to $36.35 billion.

Analysts were looking for earnings of 68 cents per share on $35.9 billion in revenue, according to FactSet.

Walgreens now expects adjusted earnings to range from $2.80 to $2.95 for its fiscal year, which ends in August. That’s down from a forecast of $3.20 to $3.35 per share that it had narrowed in March.

Analysts expect $3.20 per share.

That guidance cut was not “overly shocking to us as the company now begins the next leg of its turnaround,” Leerink Partners analyst Michael Cherny said in a research note.

But the overall results surprised investors. Shares of the Deerfield, Illinois, company plunged 24% to $11.89 Thursday morning while the S&P 500 index rose slightly.